Do you retain 95% of your customers month-to-month? That sounds like something to be proud of—until you do the math. That’s 5% churn per month, or 60% per year. In other words, you have to replace 60% of your revenue every year just to break even. What if you have monthly 98% retention/2% churn? That’s still 25% a year, or a quarter of your revenue.
The best-run SaaS companies can see up to –2% churn per month (on a revenue basis). Yes, that’s negative 2%, which means they make more money every month. How? Because the customers who stay with them buy and spend more over time than what the company loses from other customers leaving.
If you’re a CEO, you need to take Customer Success as seriously as marketing, sales, or product development.
Rule 1: Customer Success Is Your Core Growth Driver
All great customers come from one main source—word-of- mouth, whether the leads come via referrals directly, or whether new customers are closed using case studies, references, or testimonials. This is much more measurable in recurring revenue models, where we can track renewal rates, upsell amounts, and referrals. But the principle applies to every business.
Rule 2: Customer Success Is 5x More Important Than Sales
Sales begins what will hopefully be a longer-term relationship. Generally, founders do a good job of whatever it takes to get a big deal closed—but often they do a poor job of everything after that, because they’re off to help with the next thing. CEOs and founders: don’t focus on getting new customers so much that you ignore your current customers.
Rule 3: Start Early, Hire Early
In SaaS, Customer Success is a “single-digit hire”—one of the first 10 hires. Another SaaS rule is having one Customer Success manager per $2 million in revenue—hired in advance of that revenue, not after you have it.
A Customer Success person, like a salesperson or a marketing budget, is an investment that should make money (a lot); it’s not a cost to be put off.
Rule 4: Visit Customers in Person
Unhappy customers don’t (always) complain before they leave. In-person visits can make all the difference in identifying their problems and in changing their attitudes.
A phone call is not a meeting. By visiting in person, regularly, your company will learn more about what’s really working or not, earn more trust—and those customers will (almost) never churn.
Rule 5: Customer Success Needs Financial Responsibility and Metrics
When your Customer Success function doesn’t have financial goals, its value can get muddled. The whole point of Customer Success is to increase net negative churn, so you need tools and processes to measure and improve the function, including how the people on your team perform.
Customer Success needs to own some financial results: usually at least on retention rates and perhaps even on upsell revenue.
Rule 6: Evolve Customer Success Goals and Metrics as You Grow
SaaS companies generally experience theses phases (courtesy of Gainsight):
- Traction ($0–$1 million): What do customers want, and what do they do with our product?
- Adoption ($1–$5 million): Why and how should customers include our product in their daily business?
- Retention ($5–$20million): Why do customers need to keep on using our product after the honeymoon?
- Expansion ($20–$100 million): Why should customers expand to more seats, more features?
- Optimization ($100 million–plus): Automation and improvements driven by data.
Your phases may be different. The point is: never assume Customer Success is “done,” and won’t need extra investment or executive attention next year.
Customer Success = Company Success
It’s easier to save a customer before they send you a cancelling notice! First the team does this based upon intuition, and over time it can be based more and more on historical data and automatic triggers/alerts. That said, data can’t alert you to every problem. You will always need humans talking to humans to uncover and resolve issues.
Customer support typically reacts to problems that have happened. On the other hand, Customer Success works best in preventing problems from being created in the first place.
It’s often assumed that “a great product will automatically create happy customers.” That’s not true. Customer Success creates happy customers – and happy churn rates.
we hope you enjoyed this From Impossible To Inevitable excerpt!
by the way, did you know Predictable Revenue now has a “Done For You” outsourced outbound acceleration service, to help you get outbound off the ground until you can build an internal team? find out more HERE
…or just write me back by replying to this email 🙂
aaron ‘air’ ross
and the next Predictable University live Certification class begins in 12 days, November 15, so you can get prepared to hit 2017 running Jan 1. see PredictableUniversity.com and email firstname.lastname@example.org for details, or to find out about the new “self-directed” class if you’re on a tiny budget.
pps: i just heard a joke yesterday (well, they might have been serious), from someone with five kids. when asked what it was like, he said “imagine you’re drowning, and someone hands youa baby.” ha! i laughed out loud for real at that.
well, jess is pregnant, and we have a new baby daughter due in late February. part of me wonders “how the heck will we manage,” with baby Rose is still under a year and keeping us awake at night, but one of my uber-learnings from having a huge family (growing 0-to-12 kids in ~6/7 years) is: when something feels right, even if it looks impossible, keep pushing forward to it, baby step by baby step, and the solution will appear along the way.
ppps: Darcy and i out for halloween as two princesses and a couple of other family halloween pics, at least of the little kids who are easier to pin down 🙂
aurora and her friend went all out…WOW